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Rising fuel costs drive UK inflation to 0.7 in March

Rising fuel costs drive UK inflation to 0.7 in March thumbnail

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The UK inflation rate rose to 0.7% in the 12 months to March, up from 0.4% in February, pushed up by the increased cost of fuel, transport and clothes.

The increase was slightly below economists’ forecasts, held back by lower food prices.

The Office for National Statistics said some food “staples were lower than at the start of the pandemic”.

Inflation is forecast to rise in the coming months, due to higher domestic energy bills and rising oil prices.

The Bank of England has forecast that inflation could reach 1.9% by the end of 2021, with other experts saying it will exceed 2% before the end of year.

The March inflation figure would have been higher without a fall in food prices, the Office for National Statistics (ONS) said.

ONS deputy national statistician Jonathan Athow said: “The rate of inflation increased with petrol prices rising and clothes recovering from the falls seen in February.

“However, food prices fell back on the year, as prices of some staples were lower than at the start of the pandemic.”

Inflation had unexpectedly eased in February, in part because of the biggest annual fall in clothing and footwear costs since 2009.

Discounting, which had been commonplace in February, eased somewhat in March, the ONS said, however it was still unseasonably high.

Pantheon’s chief UK economist, Samuel Tombs, believes the Consumer Prices Index (CPI) will reach the Bank of England’s 2% target rate as early as May.

Turning point

“Looking ahead, CPI inflation looks set to jump to about 1.7% in April, driven primarily by a large semi-annual increase in electricity and natural gas prices, as well as the anniversary of the collapse in oil prices at the start of the pandemic,” he said.

“April’s data also will be collected after shops reopened and hospitality businesses resumed outdoor service, so the inflation rates for clothing and food service activities probably will both rise.”

And Paul Craig, at Quilter Investors, said that with the UK economy opening from lockdown, inflation had reached a turning point.

“Price growth is now on an upward trajectory, and should remain so for some time to come,” he warned. “From here, inflation may tick markedly higher if the steady drip of consumer spending morphs into a waterfall as lockdown restrictions are lifted and households spend some of their accumulated pandemic savings.”

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